<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

(Mark One)

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934

For the fiscal year ended December 31, 2003 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

For the transition period from________________to________________

Commission file number                   0-49771

                             Merchants Bancorp, Inc.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its Charter.)

             Ohio                                        31-1467303
--------------------------------              ----------------------------------
(State or other jurisdiction of               (IRS) Employer Identification No.)
incorporation or organization)

  100 North High Street, Hillsboro, Ohio                      45133
-----------------------------------------         ------------------------------
 (Address of principal executive offices)                   (ZIP Code)

                                 (937) 393-1993
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

     Title Of Each Class               Name of Each Exchange On Which Registered

Securities registered pursuant to Section 12(g) of the Act:

                                  Common Shares
--------------------------------------------------------------------------------
                                (Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]

                                       1
<PAGE>

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

Yes [ ]   No [X]


State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter. $63,000,000

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 2,666,650 common shares

                       DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).

Portions of the Company's Proxy Statement to shareholders in connection with the
2004 annual meeting of shareholders are incorporated by reference into Part III
of this Report on Form 10-K.

                                       2
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

General

         Merchants Bancorp, Inc. (the "Company") was incorporated under the laws
of the State of Ohio on March 29, 1996 at the direction of the Board of
Directors of the Merchants National Bank (the "Bank") for the purpose of
becoming a bank holding company by acquiring all of the outstanding shares of
the Bank. In December, 1996 the Company became the sole shareholder of the Bank.
The principal office of the Company is located at 100 North High Street,
Hillsboro, Ohio 45133. Hillsboro, situated in south central Ohio, is centrally
located between the cities of Columbus, Cincinnati and Dayton, and is the county
seat of Highland County. Highland County has a population of approximately
41,000. The company, through its banking affiliate, also conducts business in
the neighboring counties of Madison and Fayette, which have populations of
approximately 40,000 and 28,000 respectively.

         This tri-county area is primarily agricultural. Madison County is one
of Ohio's principal producers of corn and soybeans, and Fayette County is a
significant horsebreeding area. However, manufacturing also provides a
significant source of employment in the area, accounting for approximately 30%
of all jobs in the three counties. Area manufacturers produce a wide array of
products, including textiles, electrical components and automotive parts. Some
of the area's principal manufacturers include Hobart Corp., Johnson Controls,
Inc., Showa Aluminum Corp., and Yamashita Rubber and Calmas, Inc. The Bank has
operated in Hillsboro, Ohio as a national banking association since its charter
was granted on December 26, 1879.

         The Company, through its banking affiliate, offers a broad range of
banking services to the commercial, industrial and consumer market segments
which it serves. The primary business of the Bank consists of accepting deposits
through various consumer and commercial deposit products, and using such
deposits to fund various loan products. The Bank's primary loan products (and
the general terms for each) are as follows: (1) loans secured by residential
real estate, including loans for the purchase of one to four family residences
which are secured by 1st and 2nd mortgages (15 to 30 year terms with fixed and
adjustable rate options) and home equity loans (10 year maturities tied to prime
rate); (2) consumer loans, including new and used automobile loans (up to 60
months), loans for the purchase of mobile homes (10 to 15 year terms) and debt
consolidation loans (exact terms depending upon available collateral); (3)
agricultural loans, including loans for the purchase of real estate used in
connection with agricultural purposes (15 to 30 year terms), operating loans (1
year terms) and loans for the purchase of equipment (5 to 7 year terms); and (4)
commercial loans, including loans for the purchase of real estate used in
connection with office or retail activities (15 to 20 year terms), loans for the
purchase of equipment (7 to 10 year terms) and loans for the purchase of
inventory (1 year terms).

         The primary risks inherent in any type of lending include interest rate
risk and credit risk associated with the credit quality of individual borrowers.
For further information regarding interest rate risk, see the section captioned
"Market Risk Management" under "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Credit risk is generally offset
both through the use of security and mortgage interests, and through the
implementation of designated loan approval processes. Senior mortgages in real
estate provide the greatest protection in the event of borrower default, while
junior mortgages and security interests in depreciating assets provide somewhat
less protection. Loans not secured by real or personal property present the
greatest risk of loss upon default. All loans, whether secured or unsecured, are
approved in accordance with a loan policy adopted by the Company's Board of
Directors. While loan officers do have authority to make credit decisions
outside of the parameters of the Board's loan policy, such loan officers must
satisfy designated documentation

                                       3
<PAGE>

requirements when doing so. Credit risk is further mitigated both by restricting
the types of loans and by establishing maximum amounts which can be approved by
individual loan officers. Loans made beyond these individual limitations must be
affirmatively approved by a committee comprised of loan officers. The Bank also
engages in certain government guarantee programs, which help to reduce the risk
inherent in certain types of loans.

         All of the Bank's deposit and lending services are available at its
four full service offices. The remaining three offices of the Bank are engaged
primarily in deposit-related services. The Company has no foreign operations,
assets or investments.

         The Bank is a national banking association organized under the laws of
the United States. The Bank is regulated by the Office of the Comptroller of the
Currency ("OCC"), and its deposits are insured by the Federal Deposit Insurance
Company ("FDIC") to the extent permitted by law and, as a subsidiary of the
Company, is regulated by the Board of Governors of the Federal Reserve. As of
December 31, 2003, the Company and its subsidiary had consolidated total assets
of approximately $352 million, consolidated total deposits of approximately $270
million and consolidated total shareholders' equity of approximately $28.2
million.

Employees

         As of December 31, 2003, the Bank had 88 full-time and 9 part-time
employees. The Bank provides a number of benefits for its full-time employees,
including health and life insurance, pension, profit sharing and 401(k) plans,
workers' compensation, social security, paid vacations, and certain bank
services.

Competition

         The Bank's market consists of the following Ohio Counties: Fayette,
Highland, and Madison. The commercial banking business in this market is very
competitive. The Company and the Bank are in competition with other commercial
banks operating in the primary market area. Some competitors of the Company and
the Bank are substantially larger than the Bank. In addition to local bank
competition, the Bank competes with larger commercial banks headquartered in
metropolitan areas, savings banks, savings and loan associations, credit unions,
finance companies and other financial institutions for loans and deposits.

         Pursuant to Deposit Market Share statistical information compiled by
the Federal Deposit Insurance Corporation, there are approximately twenty (20)
financial institutions operating in the Bank's market. As of June 30, 2003 (the
most recent date for which the compiled statistical information is available)
the Bank possessed the second largest market share with $262.4 million in total
deposits, representing a market share of approximately 17.0%. Three other
depositary institutions also possess over 10% of the market share in the Bank's
market.

         The principal methods of competition within the financial services
industry include improving customer service through the quality and range of
services provided, improving efficiencies, and pricing services competitively.
The Bank views its primary competitive advantages as being the provider of
outstanding customer service and maintaining strong relationships with its core
customer base. Rarely does the Bank offer the highest rates on deposit accounts
or the lowest rates on loans. Fees and service charges are priced to meet the
competition. The Bank believes that its distinguishing characteristics are
knowing its customers, offering quality customer service and timely loan
decisions and closings. By focusing on these key attributes, the Bank has built
a loyal customer base, which also serves as its greatest source of new business
by way of customer referrals.

                                       4
<PAGE>

SUPERVISION AND REGULATION

General

         Merchants Bancorp, Inc. is a corporation organized under the laws of
the State of Ohio. The business in which the Company and its subsidiary are
engaged is subject to extensive supervision, regulation and examination by
various bank regulatory authorities. The supervision, regulation and examination
to which the Company and its subsidiary are subject are intended primarily for
the protection of depositors and the deposit insurance funds that insure the
deposits of banks, rather than for the protection of shareholders.

         Several of the more significant regulatory provisions applicable to
banks and bank holding companies to which the Company and its subsidiary are
subject are discussed below, along with certain regulatory matters concerning
the Company and its subsidiary. To the extent that the following information
describes statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory provisions. Any change in applicable law
or regulation may have a material effect on the business and prospects of the
Company and its subsidiary.

Regulatory Agencies

         The Company, upon approval from the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), became a bank holding company on
December 31, 1996, and continues to be subject to regulation under the Bank
Holding Company Act of 1956 and to inspection, examination and supervision by
the Federal Reserve Board.

         The Bank is a national banking association chartered under the laws of
the United States of America. It is subject to regulation and examination
primarily by the Office of the Comptroller of the Currency (the "OCC") and
secondarily by the Federal Reserve Board and the FDIC.

Holding Company Activities

         As a bank holding company incorporated and doing business within the
State of Ohio, the Company is subject to regulation and supervision under the
Bank Holding Act of 1956, as amended (the "Act"). The Company is required to
file with the Federal Reserve Board on a quarterly basis information pursuant to
the Act. The Federal Reserve Board may conduct examinations or inspections of
the Company and its subsidiary.

         The Company is required to obtain prior approval from the Federal
Reserve Board for the acquisition of more than five percent of the voting shares
or substantially all of the assets of any bank or bank holding company. In
addition, the Company is generally prohibited by the Act from acquiring direct
or indirect ownership or control of more than five percent of the voting shares
of any company which is not a bank or bank holding company and from engaging
directly or indirectly in activities other than those of banking, managing or
controlling banks or furnishing services to its subsidiaries. The Company may,
however, subject to the prior approval of the Federal Reserve Board, engage in,
or acquire shares of companies engaged in activities which are deemed by the
Federal Reserve Board by order or by regulation to be so closely related to
banking or managing and controlling a bank as to be a proper activity.

         On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted into law. The GLB Act made sweeping changes with respect to the
permissible financial services which various

                                       5
<PAGE>

types of financial institutions may now provide. The Glass-Steagall Act, which
had generally prevented banks from affiliation with securities and insurance
firms, was repealed. Pursuant to the GLB Act, bank holding companies may elect
to become a "financial holding company," provided that all of the depository
institution subsidiaries of the bank holding company are "well capitalized" and
"well managed" under applicable regulatory standards.

         Under the GLB Act, a bank holding company that has elected to become a
financial holding company may affiliate with securities firms and insurance
companies and engage in other activities that are financial in nature.
Activities that are "financial in nature" include securities underwriting,
dealing and market-making, sponsoring mutual funds and investment companies,
insurance underwriting and agency, merchant banking, and activities that the
Federal Reserve Board has determined to be closely related to banking. No
Federal Reserve Board approval is required for the Company to acquire a company,
other than a bank holding company, bank or savings association, engaged in
activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board. Prior Federal
Reserve Board approval is required before the Company may acquire the beneficial
ownership or control of more than 5% of the voting shares, or substantially all
of the assets, of a bank holding company, bank or savings association. If any
subsidiary bank of the Company ceases to be "well capitalized" or "well managed"
under applicable regulatory standards, the Federal Reserve Board may, among
other actions, order the Company to divest the subsidiary bank. Alternatively,
the Company may elect to conform its activities to those permissible for a bank
holding company that is not also a financial holding company. If any subsidiary
bank of the Company receives a rating under the Community Reinvestment Act of
1977 of less than satisfactory, the Company will be prohibited from engaging in
new activities or acquiring companies other than bank holding companies, banks
or savings associations. The Company has not elected to become a financial
holding company and has no current intention of making such an election.

Affiliate Transactions

         Various governmental requirements, including Sections 23A and 23B of
the Federal Reserve Act, limit borrowings by holding companies and non-bank
subsidiaries from affiliated insured depository institutions, and also limit
various other transactions between holding companies and their non-bank
subsidiaries, on the one hand, and their affiliated insured depository
institutions on the other. Section 23A of the Federal Reserve Act also generally
requires that an insured depository institution's loan to its non-bank
affiliates be secured, and Section 23B of the Federal Reserve Act generally
requires that an insured depository institution's transactions with its non-bank
affiliates be on arms-length terms.

Interstate Banking and Branching

         Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
("Riegle-Neal"), subject to certain concentration limits and other requirements,
bank holding companies such as the Company are permitted to acquire banks and
bank holding companies located in any state. Any bank that is a subsidiary of a
bank holding company is permitted to receive deposits, renew time deposits,
close loans, service loans and receive loan payments as an agent for any other
bank subsidiary of that bank holding company. Banks are permitted to acquire
branch offices outside their home states by merging with out-of-state banks,
purchasing branches in other states and establishing de novo branch offices in
other states, The ability of banks to acquire branch offices is contingent,
however, on the host state having adopted legislation "opting in" to those
provisions of Riegle-Neal. In addition, the ability of a bank to merge with a
bank located in another state is contingent on the host state not having adopted
legislation "opting out" of that provision of Riegle-Neal. The Company could
from time to time use Riegle-Neal to acquire banks in additional states.

                                       6
<PAGE>

Control Acquisitions

         The Change in Bank Control Act prohibits a person or group of persons
from acquiring "control" of a bank holding company, unless the Federal Reserve
Board has been notified and has not objected to the transaction. Under the
rebuttable presumption established by the Federal Reserve Board, the acquisition
of 10% or more of a class of voting stock of a bank holding company with a class
of securities registered under Section 12 of the Exchange Act, such as the
Company, would, under the circumstances set forth in the presumption, constitute
acquisition of control of the bank holding company. In addition, a company is
required to obtain the approval of the Federal Reserve Board under the Bank
Holding Company Act before acquiring 25% (5% in the case of an acquiror that is
a bank holding company) or more of any class of outstanding voting stock of a
bank holding company, or otherwise obtaining control or a "controlling
influence" over that bank holding company.

Liability for Banking Subsidiaries

         Under the current Federal Reserve Board policy, a bank holding company
is expected to act as a source of financial and managerial strength to each of
its subsidiary banks and to maintain resources adequate to support each
subsidiary bank. This support may be required at times when the bank holding
company may not have the resources to provide it. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a U.S.
federal bank regulatory agency to maintain the capital of a subsidiary bank
would be assumed by the bankruptcy trustee and entitled to priority of payment.
Any depository institution insured by the FDIC can be held liable for any loss
incurred, or reasonably expected to be incurred, by the FDIC in connection with
(1) the "default" of a commonly controlled FDIC-insured depository institution;
or (2) any assistance provided by the FDIC to both a commonly controlled
FDIC-insured depository institution "in danger of default." The Company's
subsidiary bank is an FDIC-insured depository institution. If a default occurred
with respect to the Bank, any capital loans to the Bank from its parent holding
company would be subordinate in right of payment to payment of the Bank's
depositors and certain of its other obligations.

Regulatory Capital Requirements

         The Company is required by the various regulatory authorities to
maintain certain capital levels. Bank holding companies are required to maintain
minimum levels of capital in accordance with Federal Reserve capital adequacy
guidelines. If capital falls below minimum guideline levels, a bank holding
company, among other things, may be denied approval to acquire or establish
additional banks or non-bank businesses. The required capital levels and the
Company's capital position at December 31, 2003 are summarized in the table
included in Note 13 to the consolidated financial statements.

FDICIA

         The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), and the regulations promulgated under FDICIA, among other things,
established five capital categories for insured depository institutions-well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized-and requires U.S. federal bank
regulatory agencies to implement systems for "prompt corrective action" for
insured depository institutions that do not meet minimum capital requirements
based on these categories. Unless a bank is well capitalized, it is subject to
restrictions on its ability to offer brokered deposits and on certain other
aspects of its operations. An undercapitalized bank must develop a capital
restoration plan and its parent bank holding company must guarantee the bank's
compliance with the plan up to the lesser of 5% of the bank's or thrift's assets
at the time it became undercapitalized and the amount needed to comply with the
plan. As of December 31,

                                       7
<PAGE>

2003, the Company's banking subsidiary was well capitalized pursuant to these
prompt corrective action guidelines.

Dividend Restrictions

         The ability of the Company to obtain funds for the payment of dividends
and for other cash requirements will be largely dependent on the amount of
dividends which may be declared by its banking subsidiary. Various U.S. federal
statutory provisions limit the amount of dividends the Company's banking
subsidiaries can pay to the Company without regulatory approval. Dividend
payments by national banks are limited to the lesser of (1) the level of
undivided profits; (2) the amount in excess of which the bank ceases to be at
least adequately capitalized; and (3) absent regulatory approval, an amount not
in excess of net income for the current year combined with retained net income
for the preceding two years.

         In addition, U.S. federal bank regulatory authorities have authority to
prohibit the Company's banking subsidiary from engaging in an unsafe or unsound
practice in conducting their business. The payment of dividends, depending upon
the financial condition of the bank in question, could be deemed to constitute
an unsafe or unsound practice. The ability of the Company's banking subsidiary
to pay dividends in the future is currently, and could be further, influenced by
bank regulatory policies and capital guidelines.

Deposit Insurance Assessments

         The deposits of the Company's banking subsidiary are insured up to
regulatory limits by the FDIC, and, accordingly, are subject to deposit
insurance assessments to maintain the Bank Insurance Fund (the "BIF") and/or the
Savings Association Insurance Fund (the "SAIF") administered by the FDIC.

Depositor Preference Statute

         In the "liquidation or other resolution" of an institution by any
receiver, U.S. federal legislation provides that deposits and certain claims for
administrative expenses and employee compensation against the insured depository
institution would be afforded a priority over general unsecured claims against
that institution, including federal funds and letters of credit.

Government Monetary Policy

         The earnings of the Company are affected primarily by general economic
conditions, and to a lesser extent by the fiscal and monetary policies of the
federal government and its agencies, particularly the Federal Reserve. Its
policies influence, to some degree, the volume of bank loans and deposits, and
interest rates charged and paid thereon, and thus have an effect on the earnings
of the Company's subsidiary Bank.

Additional Regulation

         The Bank is also subject to federal regulation as to such matters as
required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, issuance or
retirement of their own securities, limitations upon the payment of dividends
and other aspects of banking operations. In addition, the activities and
operations of the Bank are subject to a number of additional detailed, complex
and sometimes overlapping laws and regulations. These include state usury and
consumer credit laws, state laws relating to fiduciaries, the Federal
Truth-in-Lending Act and

                                       8
<PAGE>

Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B, the
Fair Credit Reporting Act, the Truth in Savings Act, the Community Reinvestment
Act, anti-redlining legislation and antitrust laws.

Future Legislation

         Changes to the laws and regulations, both at the federal level and in
the states where the Company and its subsidiary do business, can affect the
operating environment of the Company and its subsidiary in substantial and
unpredictable ways. The Company cannot accurately predict whether those changes
in laws and regulations will occur, and, if those changes occur, the ultimate
effect they would have upon the financial condition or results of operations of
the Company or its subsidiary.

ITEM 2. PROPERTIES.

         The Bank owns the real property used in its business as follows:

             Main Office:                    Greenfield Main
             100 N. High Street              117 S. Washington Street
             Hillsboro, Ohio 45133           Greenfield, Ohio 45123

             Hillsboro Branch                Greenfield Branch
             1478 N. High Street             102 Jefferson Street
             Hillsboro, Ohio 45133           Greenfield, Ohio 45123

             Hillsboro Uptown Branch         Washington Court House Branch
             145 W. Beech Street             128 S. North Street
             Hillsboro, Ohio 45133           Washington Court House, Ohio  43160

             London Branch
             279 LaFayette Street
             London, Ohio  43140

         All such properties are suitable for carrying on the general business
of commercial banking. No such properties are subject to any material
encumbrance.

ITEM 3. LEGAL PROCEEDINGS.

         Currently, there are no legal proceedings of a material nature pending
to which either the Company or the Bank is a party, or to which any of their
property is the subject. Additionally, management of the Company is not aware of
the contemplation of any proceedings the institution of which would have a
material adverse impact upon the financial condition of the Company or the Bank.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         There was no matter submitted during the fourth quarter of the fiscal
year covered by this report to a vote of the Company's security holders.

                                       9
<PAGE>

                                     PART II

ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.

a.       Market Information

         There is no established public trading market for the Company's common
stock and the shares of the Company are not listed on any exchange. Sale price
information provided below on a quarterly basis for the two most recent fiscal
years is based on information reported to the Company by individual buyers and
sellers of the Company's stock, based on actual transactions of which
information was obtained at the time of transfer. Not all sales transaction
information during these periods was obtained.

<TABLE>
<CAPTION>
                                2003
 -------------------------------------------------------------------
 First Quarter     Second Quarter    Third Quarter    Fourth Quarter
 -------------     --------------    -------------    --------------
 High      Low     High      Low     High      Low    High     Low
<S>      <C>      <C>      <C>      <C>      <C>     <C>     <C>
$25.00   $18.00   $23.00   $20.00   $25.00   $20.00  $22.50  $20.00
</TABLE>

<TABLE>
<CAPTION>
                                2002
 -------------------------------------------------------------------
 First Quarter     Second Quarter    Third Quarter    Fourth Quarter
 -------------     --------------    -------------    --------------
 High      Low     High     Low      High      Low    High     Low
<S>       <C>     <C>      <C>      <C>      <C>     <C>     <C>
$28.00    $26.50  $28.06  $20.00    $25.00   $21.00  $26.00  $20.00
</TABLE>
---------------------------

         At December 31, 2003, the Company had 2,945,000 shares of common stock
outstanding. All of such shares are eligible for sale in the open market without
restriction or registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for shares held by "affiliates" of the Company. Shares
held by affiliates are subject to the resale limitations of Rule 144, as
promulgated under the Securities Act. For purposes of Rule 144, "affiliates" are
deemed to be all Directors, Executive Officers and ten percent beneficial owners
of the Company. As of December 31, 2003, affiliates of the Company had
beneficial ownership of an aggregate of 478,073 shares of the Company's common
stock. The Company has one shareholder with beneficial ownership of more than
ten percent of its outstanding shares, and such individual is also a Director of
the Company.

         Rule 144 subjects affiliates to certain restrictions in connection with
the resale of Company securities that do not apply to individuals currently
holding outstanding shares of Company stock. Commencing ninety days after the
effective date of this Registration Statement, affiliates of the Company may
sell within any three-month period a number of shares that does not exceed the
greater of one percent of the number of then outstanding shares of Company
common stock, or the average weekly trading volume of the common stock in the
over-the-counter market during the four calendar weeks preceding filing by the
selling affiliate of the requisite notice of sale with the SEC on Form 144.
Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice to the Securities and Exchange Commission, and the availability
of current public information about the Company.

         On August 28, 2003 Merchants Bancorp entered into a stock redemption
agreement with 3 shareholders of the Company. Collectively the three
shareholders owned 351,350 common shares of the Company or 11.71% of outstanding
shares. They desired to sell 333,350 of such shares(referred to herein

                                       10
<PAGE>

as the "shares") to the Company. The Company retained Austin Associates, LLC to
determine a "fair value" and issued a "fairness opinion" to the Company dated
July 30, 2003. The purchase was to be made in two separate settlements. The
first settlement was for 55,000 shares and a total of $1,155,000 and occurred on
September 5, 2003. The second settlement occurred on January 9, 2004 for the
278,350 remaining shares. The dollar value of the second settlement is
$5,845,349.87 and is recorded in other liabilities on the December 31, 2003
financial statements. The total value of the transaction is $7,000,349.87.

b.       Holders

         The number of holders of record of the Company's common stock at
December 31, 2003 was 786.

c.       Dividends

         Dividends are generally declared by the Board of Directors of the
Company semiannually (June 30 and December 31, respectively). Dividends per
share declared by the Company on its common stock during the years of 2003 and
2002 are as follows:

<TABLE>
<CAPTION>
                 2003    2002
<S>             <C>     <C>
 Month
  June          $0.32   $0.28
  December      $0.32   $0.32
                -----   -----
TOTALS          $0.64   $0.60
                =====   =====
</TABLE>

         The Company currently expects that comparable semiannual cash dividends
will continue to be paid in the future. For information on regulatory
restrictions to the Board's ability to declare and pay dividends, please refer
to the following: (1) Supervision and Regulation - Dividend Restrictions and (2)
Note 13 to the Company's Consolidated Financial Statements, Regulatory Matters.

                                       11
<PAGE>

The Company's Quarterly Financial Data for 2003 and 2002 follows:

<TABLE>
<CAPTION>
                                                       Three months ended
                                             -------------------------------------
(in thousands, except per share data)        March 31  June 30    Sept 30   Dec 31
----------------------------------------------------------------------------------
<S>                                          <C>       <C>        <C>       <C>
2003
Net interest income                           $3,459    $3,626    $3,570    $2,931
Provision for loan losses                        404       262     1,785       456
Noninterest income                               371       370       384       381
Noninterest expense                            1,964     1,927     1,665     1,356
Net income                                    $1,005    $1,223    $  485    $1,078

Per common share:
Basic and diluted earnings per share          $ 0.34    $ 0.41    $ 0.16    $ 0.38
Dividends declared                            $    -    $ 0.32    $    -    $ 0.32

Selected ratios:
Return on average assets, annualized            1.24%     1.44%      .57%     1.26%
Return on average common equity, annualized    12.01%    14.19%     5.93%    13.18%
Net interest margin, annualized                 4.53%     4.54%     4.44%     3.50%

2002
Net interest income                           $2,926    $3,296    $3,483    $3,267
Provision for loan losses                         84       145       138        69
Noninterest income                               352       379       400       378
Noninterest expense                            1,735     1,797     1,887     1,691
Net income                                    $  995    $1,178    $1,255    $1,344

Per common share:
Basic and diluted earnings per share          $ 0.33    $ 0.39    $ 0.42    $ 0.45
Dividends declared                            $    -    $  0.2    $    -    $ 0.32

Selected ratios:
Return on average assets, annualized            1.31%     1.57%     1.63%     1.69%
Return on average common equity, annualized    13.00%    14.97%    15.76%    16.22%
Net interest margin, annualized                 4.40%     4.71%     4.83%     4.52%
</TABLE>

                                       12
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

                  The following table sets forth certain information derived
from the consolidated financial information of the Company for each of the years
as of December 31 (in thousands, except per share data).

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                        2003        2002        2001        2000        1999
                                                      --------    --------    --------    --------    --------
<S>                                                   <C>         <C>         <C>         <C>         <C>
Interest and loan fee income                          $ 20,310    $ 20,866    $ 22,431    $ 21,603    $ 18,427
Interest expense                                         6,724       7,894      10,793      10,395       8,088
Net interest income                                     13,586      12,972      11,638      11,208      10,339
Provision for loan losses                                2,907         436         177         177         130
Net interest income after provision for loan losses     10,679      12,536      11,461      11,031      10,209
Noninterest income                                       1,506       1,509       1,472       1,269       1,094
Noninterest expense                                      6,912       7,110       6,576       6,131       5,762
Income before income taxes                               5,273       6,935       6,357       6,169       5,541
Income taxes                                             1,482       2,163       1,952       1,964       1,765
Net income                                               3,791       4,772       4,405       4,205       3,776

YEAR-END BALANCES
Assets                                                $352,421    $318,799    $304,896    $278,734    $246,923
Securities                                              33,085      40,012      38,221      37,753      40,661
Loans, net                                             286,192     246,164     221,767     220,460     184,963
Deposits                                               270,432     262,716     262,608     236,046     216,857
Short Term Borrowings                                    2,784       3,365       1,424       1,887       1,172
Federal Home Loan Bank advances                         43,706      17,470       8,993       7,000       4,000
Shareholders' equity                                    28,227      33,508      30,232      27,114      23,579


AVERAGE BALANCES
Assets                                                $341,025    $308,488    $288,236    $265,957    $238,980
Securities                                              36,376      45,511      37,245      40,639      38,789
Loans                                                  272,013     237,788     227,150     210,325     176,738
Deposits                                               268,069     253,869     246,919     231,047     205,329
Short-term borrowings                                    2,961       3,158       1,996       2,150       1,986
Federal Home Loan Bank advances                         34,061      17,649       8,285       6,403       7,879
Shareholders' equity                                    32,878      32,384      29,357      25,523      23,148

SELECTED FINANCIAL RATIOS
Net interest margin (tax equivalent)                      4.38%       4.63%       4.37%       4.55%       4.66%
Return on average assets                                  1.11%       1.55%       1.53%       1.58%       1.58%
Return on average equity                                 11.53%      14.74%      15.00%      16.48%      16.31%
Average equity to average assets                          9.64%      10.50%      10.19%       9.60%       9.69%
Dividend payout ratio                                    50.18%      37.72%      35.41%      32.10%      33.10%
Ratio of nonperforming loans to total loans               0.51%       0.19%       0.17%       0.14%       0.13%
Ratio of loan loss allowance to total loans               0.84%       0.85%       0.88%       0.86%       1.02%
Ratio of loan loss allowance to nonperforming loans        166%        368%        512%        599%        781%
Basic earnings per share(1)                           $   1.27    $   1.59    $   1.47    $   1.40    $   1.26
Diluted earnings per share(1)                         $   1.27    $   1.59    $   1.47    $   1.40    $   1.26
Dividends declared per share(1)                       $   0.64    $   0.60    $   0.52    $   0.45    $   0.42
</TABLE>


                                       13
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION
AND RESULTS OF OPERATIONS

         The following discussion and analysis comparing 2003 to prior years
should be read in conjunction with the audited consolidated financial statements
at December 31, 2003 and 2002 and for the three years ended December 31, 2003.
In addition to the historical information contained herein with respect to the
Company, the following discussion contains forward-looking statements that
involve risks and uncertainties. Economic circumstances, the Company's operation
and the Company's actual results could differ significantly from those discussed
in the forward-looking statements. Forward-looking statements are typically
identified by words or phrases such as "believe," "expect," "anticipate,"
"intend," "estimate," "may increase," "may fluctuate," and similar expressions
or future or conditional verbs such as "will," "should," "would" and "could."
These forward-looking statements involve risks and uncertainties including, but
not limited to, economic conditions, portfolio growth, the credit performance of
the portfolios, including bankruptcies, and seasonal factors; changes in general
economic conditions including the performance of financial markets, the prices
of crops, prevailing inflation and interest rates, and losses on lending
activities; results of various investment activities; the effects of
competitors' pricing policies, of changes in laws and regulations on competition
and of demographic changes on target market populations' savings and financial
planning needs; industry changes in information technology systems on which we
are dependent; and the resolution of legal proceedings and related matters. In
addition, the policies and regulations of the various regulatory authorities
could affect the Company's results. These statements are representative only on
the date hereof, and the Company undertakes no obligation to update any
forward-looking statements made.

Critical Accounting Policies

         Management believes that the determination of the allowance for loan
losses represents a critical accounting policy. The Company maintains an
allowance for loan losses to absorb probable loan losses inherent in the
portfolio. The allowance for loan losses is maintained at a level management
considers to be adequate to absorb probable loan losses inherent in the
portfolio, based on evaluations of the collectibility and historical loss
experience of loans. Credit losses are charged and recoveries are credited to
the allowance. Provisions for loan losses are based on management's review of
the historical loan loss experience and such factors which, in management's
judgment, deserve consideration under existing economic conditions in estimating
probable credit losses. The allowance is based on ongoing assessments of the
probable estimated losses inherent in the loan portfolio. The Company's
methodology for assessing the appropriate allowance level consists of several
key elements, as described below.

         Larger commercial loans that exhibit probable or observed credit
weaknesses are subject to individual review. Where appropriate, reserves are
allocated to individual loans based on management's estimate of the borrower's
ability to repay the loan given the availability of collateral, other sources of
cash flow and available legal options. Included in the review of individual
loans are those that are impaired as provided in Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended. Any specific reserves for impaired loans are measured based
on the fair value of the underlying collateral. The Company evaluates the
collectibility of both principal and interest when assessing the need for a
specific reserve. Historical loss rates are applied to other commercial loans
not subject to specific reserve allocations.

         Homogenous loans, such as consumer installment and residential mortgage
loans, are not individually reviewed for impairment by management. Reserves are
established for each pool of loans based on the expected net charge-offs. Loss
rates are based on the average five-year net charge-off history by loan
category.

                                       14
<PAGE>


         Historical loss rates for commercial and consumer loans may be adjusted
for significant factors that, in management's judgment, reflect the impact of
any current conditions on loss recognition. Factors which management considers
in the analysis include the effects of the local economy, trends in the nature
and volume of loans (delinquencies, charge-offs, nonaccrual and problem loans),
changes in the internal lending policies and credit standards, collection
practices, and examination results from bank regulatory agencies and the
Company's internal credit review function.

         An unallocated reserve is maintained to recognize the imprecision in
estimating and measuring loss when evaluating reserves for individual loans or
pools of loans.

         Specific reserves on individual loans and historical loss rates are
reviewed throughout the year and adjusted as necessary based on changing
borrower and/or collateral conditions and actual collection and charge-off
experience.

         The Company has not substantively changed any aspect of its overall
approach in the determination of the allowance for loan losses since January 1,
2002. There have been no material changes in assumptions or estimation
techniques as compared to prior years that impacted the determination of the
current year allowance.

         Based on the procedures discussed above, management believes the
allowance for loan losses was adequate to absorb estimated loan losses
associated with the loan portfolio at December 31, 2003. See further information
regarding the allowance for loan losses in Notes 1 and 4 of the Notes to the
consolidated financial statements.

New Accounting Pronouncements

         In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS No. 145
also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers
and amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. SFAS 145 was
effective for transactions occurring after May 15, 2002. Adoption of this
standard did not have a material effect on the Corporation's consolidated
financial statements.

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. This statement was effective for exit and
disposal activities that were initiated after December 31, 2002 and has not had
a material effect on the Corporation's consolidated financial statements.

         SFAS No. 147, Acquisitions of Certain Financial Institutions, was
issued in October 2002. This statement clarifies that, if certain criteria are
met, an acquisition of a less-than-whole financial institution (such as a branch
acquisition) should be accounted for as a business combination. SFAS No. 147
states that, in such instances, the excess of the fair value of liabilities
assumed over the value of tangible and identifiable intangible assets acquired
represents goodwill. Prior to SFAS No. 147, such excesses were classified as an
unidentifiable intangible asset subject to continuing amortization under SFAS
No. 142. As a

                                       15
<PAGE>

result of SFAS No. 147, entities are required to reclassify and restate both the
goodwill asset and amortization expense as of the date SFAS No. 142 was adopted.
In addition, SFAS No. 147 amends SFAS No. 144 to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets. As a result, those
intangible assets are subject to the same undiscounted cash flow recoverability
test and impairment loss recognition and measurement provisions that SFAS No.
144 requires for other long-lived assets that are held and used by a company.
This Statement was effective October 1, 2002, and adoption did not have a
material effect on the Corporation's consolidated financial statements.

         In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. This statement amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of SFAS No. 123 to require disclosures in
both annual and interim financial statements regarding the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The Corporation does not have any outstanding stock options or
stock option plans at December 31, 2003 and 2002.

         In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain embedded derivatives, and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
Statement amends SFAS No. 133 to reflect the decisions made as part of the
Derivatives Implementation group (DIG) and in other FASB projects or
deliberations. SFAS No. 149 was effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30,
2003. Adoption of this Standard did not have a material effect on the
Corporation's Consolidated Financial Statements.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. This
Statement establishes standards for how an entity classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This Statement requires that an issuer classify a financial instrument
that is within its scope as a liability. Many of those instruments were
previously classified as equity or in some cases presented between the
liabilities section and the equity section of the statement of financial
position. This statement was effective for financial instruments entered into or
modified after May 31, 2003, and otherwise was effective at the beginning of the
first interim period beginning after June 15, 2003. Adoption of this Standard
did not have a material effect on the Corporation's Consolidated Financial
Statements.

         In December 2003, the FASB issued SFAS No. 132 (Revised 2003),
Employers' Disclosure about Pension and Other Postretirement Benefits. This
Statement expands upon the existing disclosure requirements as prescribed under
the original SFAS No. 132 by requiring more details about pension plan assets,
benefit obligations, cash flows, benefit costs and related information. SFAS No.
132 (Revised) also requires companies to disclose various elements of pension
and postretirement benefit costs in interim period financial statements
beginning after December 15, 2003. This Statement is effective for financial
statements with fiscal years ending after December 15, 2003. The Corporation
adopted this Standard and all its required disclosures.

         In November 2002, the FASB issued Interpretation No. 45, (FIN 45)
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees issued. It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability

                                       16
<PAGE>

for the fair value of the obligation undertaken in issuing the guarantee. The
Interpretation expands on the accounting guidance of SFAS No. 5, Accounting for
Contingencies, SFAS No. 57, Related Party Disclosures, and SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. It also incorporates
without change the provisions of FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others, which is superseded. The initial
recognition and measurement provisions of this Interpretation apply on a
prospective basis to guarantees issued or modified after December 31, 2002. The
disclosure requirements in this Interpretation were effective for periods ending
after December 15, 2002. Adoption of this Interpretation did not have a material
effect on the Corporation's Consolidated Financial Statements.

         In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. This Interpretation clarifies the
application of ARB No. 51, Consolidated Financial Statements, for certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated support from
other parties. This Interpretation requires variable interest entities (VIE's)
to be consolidated by the primary beneficiary which represents the enterprise
that will absorb the majority of the VIE's expected losses if they occur,
receive a majority of the VIE's residual returns if they occur, or both.
Qualifying Special Purpose Entities (QSPE) are exempt from the consolidation
requirements of FIN 46. This Interpretation was effective for VIE's created
after January 31, 2003 and for VIE's in which an enterprise obtains an interest
after that date. In December 2003, the FASB issued Staff Interpretation No. 46R
(FIN 46R), Consolidation of Variable Interest Entities -- an interpretation of
ARB 51 (revised December 2003), which replaces FIN 46. FIN 46R was primarily
issued to clarify the required accounting for interests in VIE's. Additionally,
this Interpretation exempts certain entities from its requirements and provides
for special effective dates for enterprises that have fully or partially applied
FIN 46 as of December 24, 2003. Application of FIN 46R is required in financial
statements of public enterprises that have interests in structures that are
commonly referred to as special-purpose entities, or SPE's, for periods ending
after December 15, 2003. Application by public enterprises, other than small
business issuers, for all other types of VIE's (i.e., non-SPE's) is required in
financial statements for periods ending after March 15, 2004, with earlier
adoption permitted. The Corporation does not have any variable interest
entities. Management has determined that adoption of this Interpretation will
not have a material impact on the Corporation's financial statements.

I.       RESULTS OF OPERATIONS

Overview

         Net income for 2003 was $3.8 million, a decrease of 20.6% from 2002 net
income of $4.8 million, which was an increase of 8.3% over 2001 net income of
$4.4 million. Net income per share was $1.27 in 2003, compared to $1.59 in 2002,
and $1.47 in 2001. The decrease in net income from 2002 is primarily due to
additional accrual to the loan loss reserve for higher than normal credit losses
in the agricultural loan area and one large credit loss in the commercial area.
The credit loss is discussed further in the "Loans and Allowance for Loan
Losses" section of this report. Net interest income before the provision for
loan losses increased to $13.6 million in 2003, from $13.0 million in 2002 and
$11.6 million in 2001, representing an increase of 4.7% and 11.5% in 2003 and
2002, respectively. The provision for loan losses was $2,907,000, $436,000, and
$177,000 in 2003, 2002, and 2001 respectively. Noninterest income remained the
same at $1.5 million in 2003, 2002 and 2001. Noninterest expense decreased 2.8%
to $6.9 million for 2003, from $7.1 million in 2002, which was an increase of
8.1% from $6.6 million in 2001.

                                       17
<PAGE>

Selected Statistical Information

         The following tables set forth certain statistical information relating
to the Company and its subsidiary on a consolidated basis and should be read
together with the consolidated financial statements of the Company.

CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
YIELDS/RATES
The following table presents the daily average balance of each category of
interest-earning assets and interest-bearing liabilities, and the interest
earned or paid on such amounts (dollars in thousands).

                                       18
<PAGE>

CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
YIELDS/RATES (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                     2003                           2002                            2001
                                        -----------------------------  ----------------------------   -----------------------------
                                         AVERAGE               YIELD/   AVERAGE               YIELD/   AVERAGE               YIELD/
                                         BALANCE    INTEREST   RATE     BALANCE    INTEREST   RATE     BALANCE    INTEREST   RATE
                                        ---------   --------   ------  ---------   --------   ------  ---------   --------   ------
<S>                                     <C>         <C>        <C>     <C>         <C>        <C>     <C>         <C>        <C>
Interest-earning assets:
   Loans (1)(2)(3)                       $272,013   $ 18,455    6.78%  $ 237,788   $ 18,520   7.79%   $ 227,150   $ 20,033   8.82%
   Securities available for sale (3)       34,198      2,166    6.33%     43,420      2,648   6.10%      35,264      2,348   6.66%
   FHLB and FRB stock                       2,178         89    4.09%      2,091         98   4.69%       1,981        132   6.66%
   Interest-bearing deposits                    8          3   37.50%      1,553         27   1.74%         628          5   0.80%
   Federal funds sold                      14,605        157    1.07%      6,748         92   1.36%       7,697        203   2.64%
                                        ---------   --------   -----   ---------   --------   ----    ---------   --------   ----
Total interest-earning assets             323,002     20,870    6.46%    291,600     21,385   7.33%     272,720     22,721   8.33%
                                        ---------   --------   -----   ---------   --------   ----    ---------   --------   ----
Noninterest-earning assets                 20,535                         18,950                         17,483
Less: Allowance for loan losses            (2,512)                        (2,062)                        (1,967)
                                        ---------                      ---------                      ---------
Total assets                            $ 341,025                      $ 308,488                      $ 288,236
                                        =========                      =========                      =========

Interest-bearing liabilities:
  Interest-bearing demand deposits      $  83,020   $  1,299    1.56%  $  68,787   $  1,379   2.00%   $  57,938   $  1,636   2.82%
  Savings deposits                         24,801        225    0.91%     20,759        348   1.68%      17,090        377   2.21%
  Time deposits > $100                     29,909        794    2.65%     27,798      1,004   3.61%      31,690      1,689   5.33%
  Other time deposits                     101,253      2,870    2.83%    107,565      4,169   3.88%     114,803      6,529   5.69%
  Securities sold under repo agreement.     2,961         90    3.04%      2,088         91   4.36%       1,494         85   5.69%
  Federal funds purchased                       0          0               1,070         21   1.96%         502         31   6.18%
  Federal Home Loan Bank advances          34,061      1,447    4.25%     17,649        882   5.00%       8,285        446   5.38%
                                        ---------   --------   -----   ---------   --------   ----    ---------   --------   ----
Total interest-bearing liabilities        276,005      6,725    2.44%    245,716      7,894   3.21%     231,802     10,793   4.66%
                                        ---------   --------   -----   ---------   --------   ----    ---------   --------   ----
Noninterest-bearing liabilities:
    Demand deposits                        29,086                         28,960                         25,398
    Other liabilities                       3,056                          1,428                          1,679
Shareholders' equity                       32,878                         32,384                         29,357
                                        ---------                      ---------                      ---------
Total liabilities and shareholders'
 equity                                 $ 341,025                      $ 308,488                      $ 288,236
                                        =========                      =========                      =========

Net interest income                                 $ 14,145                       $ 13,491                       $ 11,928
                                                    ========                       ========                       ========

Net interest spread (4)                                         4.02%                         4.12%                          3.68%
                                                               =====                          ====                           ====
Net interest margin (5)                                         4.38%                         4.63%                          4.37%
                                                               =====                          ====                           ====
</TABLE>

(1)  Nonaccrual loans are included in loan totals and do not have a significant
     impact on the information presented. Interest on nonaccrual loans is
     recorded when received.

(2)  Interest includes fees on loans of $398, $675, and $590, in 2003, 2002, and
     2001, respectively.

(3)  Tax-exempt income on loans and securities is reported on a fully taxable
     equivalent basis using a 34% rate.

(4)  Net interest spread represents the difference between the average yield on
     interest-earning assets and the average rate on interest-bearing
     liabilities.

(5)  Net interest margin represents the net interest income as a percentage of
     average interest earning assets.

                                       19
<PAGE>

NET INTEREST DIFFERENTIAL

         The following table illustrates the summary of the changes in interest
earned and interest paid resulting from changes in volume and rates for the
major components of interest-earning assets and interest-bearing liabilities on
a fully taxable equivalent basis for the periods indicated (dollars in
thousands).

<TABLE>
<CAPTION>
                                     Change Due   Change      Total    Change Due  Change Due    Total
                                         to       Due to     Changes       to          to       Changes
                                       Volume       Rate    2003/2002    Volume       Rate     2002/2001
                                     ----------   -------   ---------  ----------  ----------  ---------
<S>                                  <C>          <C>       <C>        <C>         <C>         <C>
INTEREST INCOME ATTRIBUTABLE TO:
Loans                                  $ 2,666    $(2,731)   $   (65)   $   938     (2,451)     $(1,513)
Securities available for sale             (562)        80       (482)       543       (243)         300
FHLB and FRB Stock                           4        (13)        (9)         7         (4)         (34)
Interest-bearing deposits                  (27)         3        (24)         7         15           22
Federal funds sold                         107        (42)        65        (25)       (86)        (111)
                                       -------    -------    -------    -------     ------      -------
Total interest income                    2,188     (2,703)      (515)     1,470     (2,806)      (1,336)

INTEREST EXPENSE ATTRIBUTABLE TO:
Demand deposits                            285       (365)       (80)       306       (563)        (257)
Savings deposits                            68       (191)      (123)        81       (110)         (29)
Time deposits                             (161)    (1,348)    (1,509)      (624)    (2,421)      (3,045)
Securities sold under repo agreement        38        (39)        (1)        34        (28)           6
Federal funds purchased                    (21)         0        (21)        35        (45)         (10)
Federal Home Loan Bank advances            832       (259)       573        511        (75)         436
                                       -------    -------    -------    -------     ------      -------

Total interest expense                   1,041     (2,202)    (1,161)       343     (3,242)      (2,899)

Net interest income                    $ 1,147    $  (501)   $   646    $ 1,127    $   436      $ 1,563
                                       =======    =======    =======    =======    =======      =======
</TABLE>

Results of Operations

         The Company reported net income of $3.8 million, $4.8 million, and $4.4
million for the years ended 2003, 2002, and 2001, respectively. During the same
periods, basic and diluted earnings per share were $1.27, $1.59, and $1.47,
respectively. The decrease in net income in 2003 is a result of a large
provision made to loan loss provision due to higher than usual chargeoffs in
2003. The majority of the charge-offs was related to one commercial loan
borrower. See the "Provision for Loan Loss" section for further discussion.

         Net interest income increased to $13.6 million in 2003 from $13.0
million in 2002 and $11.6 million in 2001. Noninterest income remained at $1.5
million in 2003, 2002 and 2001, while noninterest expense was $6.9 million, $7.1
million, and $6.6 million for the respective years.

         Return on average assets was 1.11%, 1.55%, and 1.53% in 2003, 2002, and
2001, respectively. Return on average equity was 11.53%, 14.74%, and 15.00%, for
the respective years.

Net Interest Income

         Net interest income increased to $13.6 million in 2003 from $13.0
million in 2002 and $11.6 million in 2001, representing an increase of 4.7% and
11.5% in 2003 and 2002, respectively. The Company's tax equivalent yield on
average interest-earning assets decreased to 6.46% in 2003 from

                                       20
<PAGE>

7.33% in 2002, which was lower than the 8.33% yield in 2001. The decrease in
yield is primarily a result of the Bank's declining Prime Rate, real estate
contractual repricing to a lower rate, the prepayment of higher yielding loans
and the origination of lower yielding loans. Additionally, to a lesser extent,
the yield decrease is a result of a decrease in yields on the investment
portfolio during the year. Because a large portion of commercial loans are tied
to the Prime Rate, the unusual decline in interest rates negatively impacted our
yield. The interest and fees on loans decreased 2.7% during 2003. The decrease
in interest and fees was primarily due to the low interest rate environment.

         The Company's average interest-earning assets increased approximately
$31.4 million or 10.8% in 2003 and $19.0 million or 6.9% in 2002. The higher
growth rate in 2003 as compared to 2002 is primarily due to the bank offering a
fixed rate 1-4 family loan that had not been offered in the past. Historically
the bank sold fixed rate 1-4 family loans to independent parties. The bank has
increased its fixed rate 1-4 family loans by approximately $26 million as of
December 31, 2003 from December 31, 2002.

         The previously mentioned decline in interest rates also impacted the
Company's interest expense. Falling interest rates caused interest expense to
decrease 14.8% to $6.7 million in 2003 as compared to $7.9 million in 2002 while
the average interest-bearing liabilities increased $30.3 million, or 12.3%,
during 2003 as compared to $13.9 in 2002. The cost of funds decreased to 2.44%
in 2003 from 3.21% in 2002. The average balance of certificates of deposit
decreased $4.2 million, or 3.1%, in 2003 while other interest bearing deposits
increased by $18.3 million. The fluctuation in cost of funds and certificate of
deposit growth between each year can be largely attributed to the changing
interest rate environment.

         The Company's tax equivalent net interest margin was 4.38% in 2003,
4.63% in 2002 and 4.37% in 2001. The decrease in net interest margin in 2003 was
primarily due to the recording of lower yielding 1-4 family loans. The increase
in 2002 from 2001 was primarily attributable to the Company's decreased cost of
funds.

         The Company's securities portfolio experienced a decrease in average
balances and an increase in yield during 2003. The average balance of the
portfolio decreased $9.2 million (21.2%) as compared to 2002, and the tax
equivalent yield increased to 6.33% in 2003 from 6.10% in 2002. The increase in
yield is primarily due to the shift in the mix of the portfolio. The company did
not replace the higher yielding mortgage back securities with a lower
reinvestment rate. The portfolio now contains a proportionally larger percentage
of higher yielding tax-exempt municipals. The Company's reinvestment rate was
lower in 2003 than in 2002 and 2001.

         For further information, see the table titled "Consolidated Average
Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates" in the
Selected Statistical Information.

Provision for Loan Losses

         The provision for loan losses was $2,907,000 in 2003, $436,000 in 2002
and $177,000 in 2001. The increase in the provision in 2003 was due to an
increased number of charge-offs in the commercial and agricultural credit.
Management increased the provision for loan losses to reflect the increased loan
losses in 2003 and its current assessment of the loan portfolio characteristics
during the year. Net charge-offs in 2003 were $2,580,000 compared to $290,000 in
2002 and $128,000 in 2001. The ratio of the allowance for loan losses as a
percentage of total loans at December 31 was 0.84% in 2003, 0.85% in 2002, and
..88% in 2001. For further information about the provision and management's
methodology for estimating the allowance for loan losses, see "Allowance for
Loan Losses" and "Critical Accounting Policies" within Management's Discussion
and Analysis.

                                       21
<PAGE>

Noninterest Income

         Total noninterest income was $1.5 million in 2003, 2002, and 2001. As a
percentage of average assets, noninterest income was 0.44%, 0.49%, and 0.51%, in
2003, 2002, and 2001, respectively. Service charges and fees have increased
slightly over the last three years due to increased charges and growth in the
number of deposit accounts.

Noninterest Expense

         Total noninterest expense was $6.9 million in 2003, $7.1 million in
2002, and $6.6 million in 2001, representing a decrease of 2.8% in 2003 and 8.1%
in 2002. As a percentage of average assets, noninterest expense was 2.02%,
2.30%, and 2.28% in 2003, 2002, and 2001, respectively.

         Salaries and benefits expense comprises the largest component of
noninterest expense, with totals of $3.1 million in 2003, $3.5 million in 2002,
and $3.3 million in 2001. As a percentage of assets, salaries and benefits
expense was 0.94%, 1.14%, and 1.16%, in 2003, 2002, and 2001, respectively. The
average number of full-time equivalent employees was 90 in 2003, 88 in 2002, and
86 in 2001.

         Included in salaries and benefits expense was net pension costs of
approximately $254,000 in 2003 and $145,000 in 2002, which are based upon
specific actuarial assumptions, including a long-term rate of return of 7.50%.
Management believes the rate of return is a reasonable assumption of projected
equity and bond indices long-term return projections as well as actual long-term
historical plan returns realized. Management will continue to evaluate the
actuarial assumptions, including the expected rate of return, annually, and will
adjust the assumptions as necessary.

         The Company based its determination of pension expense on a
market-related valuation of assets. Investment gains or losses are computed as
the difference between the expected return calculated using the market-related
value of assets and the actual return based on the market-related value of
assets. The future value of assets will be impacted as previously deferred gains
or losses are recognized.

         The discount rate that the Company utilizes for determining future
pension obligations decreased to 6.00% in 2003 from 6.50% in 2002, based on
management's evaluation of current yields on long-term yields on highly-rated
bonds.

         Lowering the expected long-term rate of return on plan assets or the
discount rate by .25% would not have had a significant impact on pension expense
in 2003.

II. FINANCIAL CONDITION

Assets

         The Company's total assets increased to $352.4 million in 2003 from
$318.8 million in 2002, representing an increase of 10.5%. Average total assets
increased to $341.0 million in 2003 from $308.4 million in 2002, an increase of
10.5%. Average interest-earning assets increased to $323.0 in 2003 from $291.6
million in 2002, and remained at approximately 95% of total average assets.

Securities available for sale

         The Company reported securities available for sale (at fair value) of
$33.1 million and $40.0 million at 2003 and 2002, respectively, and average
securities available for sale of $34.2 million in 2003 and $43.4 million in
2002. As a percentage of average assets, average securities were 10.03% in 2003,

                                       22
<PAGE>

14.0% in 2002 and 12.2% in 2001. As of December 31, 2003 and 2002, the Company
did not classify any securities as trading or held to maturity. It is the
general practice of management to hold securities until they are called or
matured. But, by classifying securities in the available for sale category,
management has the flexibility to sell the securities should the need arise. The
available for sale portion of the portfolio includes mortgage-backed securities,
U.S. Treasuries and municipals with an average life of 13 years, and average
repricing term of 4 years, and an average tax-equivalent yield of 6.33% for the
year ended December 31, 2003. Total available for sale securities consisted of
the following: U.S. Treasuries and Agencies - 14%; fixed-rate mortgage-backed
securities and CMO's - 24%; and fixed-rate tax-exempt municipal securities -
62%.

               INVESTMENT PORTFOLIO

               The amortized cost and fair values of securities available for
               sale as of December 31, 2003 and 2002 are presented in Note 2 to
               the consolidated financial statements. The amortized cost of
               securities as of December 31, 2003, 2002, and 2001, is presented
               below (dollars in thousands):

<TABLE>
<CAPTION>
                                                      2003      2002      2001
                                                     -------   -------   -------
<S>                                                  <C>       <C>       <C>
Securities available for sale:
  U.S. Treasury & agency obligations                 $ 4,532   $ 3,556   $ 2,515
  Obligations of states and political subdivisions    19,749    19,476     8,588
  Mortgage-backed securities                           7,554    15,564    26,320
                                                     -------   -------   -------

Total securities available for sale                   31,835   $38,596   $37,423

Federal Home Loan Bank stock                           2,110     2,028     1,937
Federal Reserve Bank stock                               120       120       120
                                                     -------   -------   -------
  Total securities                                   $34,065   $40,744   $39,480
                                                     =======   =======   =======
</TABLE>


INVESTMENT PORTFOLIO MATURITIES

         The maturity distribution and weighted average interest rates of
securities available for sale as of December 31, 2003, are as follows (dollars
in thousands):

<TABLE>
<CAPTION>

                                          Less than 1            1 to 5          5 to 10
                                             Year                 Years            Years
                                          -------------------------------------------------------
                                                        Wtd                Wtd              Wtd
                                                         Ave               Ave              Ave
                                            Amount      Yield    Amount   Yield   Amount   Yield
                                          -------------------------------------------------------
<S>                                       <C>           <C>     <C>       <C>    <C>      <C>
Securities available for sale:
  U.S. Treasury and agency obligations     $ 4,032       1.86%  $     0      -%  $    0-      -%
  Obligations of states and political sub.   3,574       3.62%    3,617   5.53%   12,558   5.13%
  Mortgage-backed securities                   123       1.93%    7,219   5.56%       83   3.13%
                                           -------       ----   -------   ----   -------   ----
Total securities available for sale        $ 7,729              $10,836          $12,641
                                           =======              =======          =======
</TABLE>

<TABLE>
<CAPTION>
                                                          Total
                                           Over 10       Amortized
                                            Years          Cost            Fair Value
                                          -------------------------------------------
                                                   Wtd               Wtd
                                                   Ave               Ave
                                           Amount Yield    Amount   Yield   Amount
                                          -------------------------------------------
<S>                                       <C>     <C>    <C>        <C>    <C>
Securities available for sale:
  U.S. Treasury and agency obligations    $ 500   5.79%     4,532   2.30%  $ 4,553
  Obligations of states and political sub    0-      -%    19,749   4.93%   20,700
  Mortgage-backed securities                129   3.18%     7,554   5.44%    7,832
                                          -----   ----   --------   ----   -------

Total securities available for sale       $ 629          $ 31,835          $33,085
                                          =====          ========          =======
</TABLE>


                                       23
<PAGE>

         The calculations of the weighted average interest rates for each
maturity category are based on yield weighted by the respective costs of the
securities. The weighted average rates on states and political subdivisions are
computed on a taxable equivalent basis using a 34% tax rate. For purposes of the
above presentation, maturities of U.S. Treasury and agency obligations and
obligations of states and political subdivisions are based on average life or
earliest call date; mortgage-backed securities are based on estimated
maturities.

         Excluding those holdings of U.S. Treasury securities and other agencies
of the U.S. Government, the Company did not hold any securities of any one
issuer that exceeded 10% of the shareholders' equity of the Company at December
31, 2003.

Loans

         The Company reported total loans of $288.6 million and $248.2 million
at 2003 and 2002, respectively. As a percentage of average assets, average loans
were 79.8% in 2003, and 77.1% in 2002.

         The table below shows the Company's loans outstanding at period-end by
type of loan. The portfolio composition has remained relatively consistent
during the three years ended December 31, 2003. Commercial and industrial loans
totaled $25.1 million in 2003, representing a small decrease from $25.8 million
in 2002, and $24.1 million in 2001. Residential real estate loans increased
$32.0 million to $131.7 million in 2003 from $99.7 million in 2002 due to the
Company's decision to hold 1-4 family fixed rate loans and increased demand by
the Company's customers for home equity loans.

         For interest rate risk management purposes historically the company has
made and held adjustable rate mortgages in its 1-4 family real estate portfolio.
Commencing in 2000, the Company started originating and selling the majority of
fixed-rate residential real estate loans, while holding the adjustable-rate
loans in the portfolio. The Company recognizes a gain on sale of loans based on
the premium received from the sale of loans to an independent party. The Company
did not have any loans held for sale at December 31, 2003 and 2002. At December
31, 2003, the Company serviced approximately $956,000 of mortgage loans
previously sold, for the benefit of others. The servicing asset and the related
servicing fees generated from serviced loans are not material to the Company's
financial statements.

         Commercial lending continues to be an important component of the
company's loan portfolio, both real estate and industrial, because of the
movement of the Company into new markets. The Company focused its commercial
lending on small- to medium-sized companies in its market area, most of which
are companies with long established track records. The Company expects to
continue to grow in the real estate and commercial portfolios. At December 31,
2003, the Company serviced approximately $3.8 million of commercial loans
previously sold, for the benefit of others.

         The Company will also continue to focus on agriculture lending and
continue to use the Farm Service Agency (FSA) Guarantee Program which will
guarantee up to 90% of the loan to qualified borrowers and therefore limits the
Company's loss exposure while servicing the agricultural industry.

         Installment loans as a percentage of total loans outstanding has
remained relatively consistent between 2003, 2002, and 2001.

                                       24
<PAGE>

LOAN PORTFOLIO

         The following table displays the loan portfolio composition at December
31 for each respective year (dollars in thousands).

<TABLE>
<CAPTION>
                                              % of             % of               % of            % of              % of
                                  2003        Total   2002     Total     2001     Total    2000   Total     1999    Total
                                ------------------------------------------------------------------------------------------
<S>                             <C>           <C>   <C>        <C>     <C>        <C>    <C>      <C>      <C>      <C>
Commercial and industrial       $ 25,158       8.7% $ 25,759    10.4%  $ 24,126   10.8%  $ 22,918   10.3%  $ 19,479   10.4%
Commercial real estate            60,833      21.1%   53,104    21.4%    41,917   18.7%    39,247   17.7%    33,784   18.1%
Agricultural                      40,362      14.0%   41,106    16.5%    34,313   15.3%    34,316   15.5%    30,511   16.3%
Residential real estate          131,741      45.6%   99,728    40.2%    97,115   43.4%    99,242   44.6%    81,677   43.7%
Installment                       27,893       9.7%   27,122    10.9%    24,995   11.2%    24,681   11.1%    20,813   11.2%
Other                              2,781       0.9%    1,493     0.6%     1,267    0.6%     1,857    0.8%       499    0.3%
                                --------     -----  --------   -----   --------  -----   --------  -----   --------  -----

Total loans                      288,768     100.0% $248,312   100.0%  $223,733  100.0%  $222,261  100.0%  $186,763  100.0%
Less:
Net deferred loan origination
    fees/costs                      (144)                (42)                (6)              110               105
Allowance for loan losses         (2,432)             (2,106)            (1,960)           (1,911)           (1,905)
                                --------            --------           --------          --------          --------
Net loans                       $286,192            $246,164           $221,767          $220,460          $184,963
                                ========            ========           ========          ========          ========
</TABLE>

The following tables show the Company's loan maturities and composition of fixed
and adjustable rate loans at December 31, 2003 (in thousands).

<TABLE>
<CAPTION>
                             Less than 1 Year     1 - 5 Years  Over 5 Years     Total
                             ----------------------------------------------------------
<S>                          <C>                  <C>          <C>             <C>
Commercial real estate          $  9,819           $  9,459       $ 41,555     $ 60,833
Commercial and industrial          8,351              9,766          7,048       25,158
Agricultural                      10,175              6,639         23,548       40,362
Residential real estate            7,386              6,396        117,874      131,741
Installment                        2,227             22,728          2,872       27,893
Other                                875              1,180            726        2,781
                             ----------------------------------------------------------
Total                           $ 38,833           $ 56,168       $193,623     $288,624
                             ==========================================================
</TABLE>

<TABLE>
<CAPTION>
                           Predetermined   Floating or
                              Rates      Adjustable Rates  Total
                           ----------------------------------------
<S>                        <C>           <C>              <C>
Commercial  real estate     $ 13,119        $ 47,714      $ 60,833
Commercial and industrial      9,547          15,618        25,165
Agricultural                  10,722          29,640        40,362
Residential real estate       37,927          93,729       131,656
Installment                   27,398             429        27,827
Other                          2,149             632         2,781
                           ---------------------------------------
Total                       $100,862        $187,762      $288,624
                           =======================================
</TABLE>

Allowance for Loan Losses

         Federal regulations and generally accepted accounting principles
require that the Company establish prudent allowances for loan losses. The
Company maintains an allowance for loan losses to absorb probable loan losses
inherent in the portfolio, based on evaluations of the collectibility and

                                       25
<PAGE>

historical loss experience of loans. Loan losses are charged and recoveries are
credited to the allowance. Provisions for loan losses are based on management's
review of the historical loan loss experience and such factors which, in
management's judgment, deserve consideration under existing economic conditions
in estimating probable loan losses. The allowance is based on ongoing
assessments of the probable estimated losses inherent in the loan portfolio. The
Company's methodology for assessing the appropriate allowance level consists of
several key elements, described below.

         Larger commercial loans that exhibit probable or observed credit
weaknesses are subject to individual review. Where appropriate, reserves are
allocated to individual loans based on management's estimate of the borrower's
ability to repay the loan given the availability of collateral, other sources of
cash flow and available legal options. Included in the review of individual
loans are those that are impaired as provided in Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended. Any specific reserves for impaired loans are measured based
on the fair value of the underlying collateral. The Company evaluates the
collectibility of both principal and interest when assessing the need for a
specific reserve. Historical loss rates are applied to other commercial loans
not subject to specific reserve allocations.

         Homogenous loans, such as consumer installment and residential mortgage
loans, are not individually reviewed by management. Reserves are established for
each pool of loans based on the expected net charge-offs. Loss rates are based
on the average five-year net charge-off history by loan category.

         Historical loss rates for commercial and consumer loans may be adjusted
for significant factors that, in management's judgment, reflect the impact of
any current conditions on loss recognition. Factors which management considers
in the analysis include the effects of the local economy, trends in the nature
and volume of loans (delinquencies, charge-offs, nonaccrual and problem loans),
changes in the internal lending policies and credit standards, collection
practices, and examination results from bank regulatory agencies and the
Company's internal credit review function.

         Specific reserves on individual loans and historical loss rates are
reviewed throughout the year and adjusted as necessary based on changing
borrower and/or collateral conditions and actual collection and

charge-off experience.

         A portion of the allowance is not allocated to any particular loan type
and is maintained in recognition of the inherent inability to precisely
determine the loss potential in any particular loan or pool of loans. Among the
factors used by management in determining the unallocated portion of the
allowance are current economic conditions, trends in the Company's loan
portfolio delinquency, losses and recoveries, level of underperforming and
nonperforming loans, and concentrations of loans in any one industry.

         The Company has not substantively changed any aspect of its overall
approach in the determination of the allowance for loan losses during 2003.
There have been no material changes in assumptions or estimation techniques as
compared to prior years that impacted the determination of the current year
allowance.

         Real estate acquired, or deemed acquired, by the Company as a result of
foreclosure proceedings is classified as other real estate owned ("OREO") until
it is sold. Interest accrual, if any, ceases no later than the date of
acquisition of the real estate, and all costs incurred from such date in
maintaining the property are expensed. OREO is recorded by the Company at the
lower of cost or fair value less estimated costs of disposal, and any write-down
resulting there from is charged to the allowance for loan

                                       26
<PAGE>

losses. When the foreclosed property is sold, the difference between proceeds
received on OREO and the recorded value is recognized in current earnings.

         As discussed above, the allowance is maintained at a level necessary to
absorb probable losses in the portfolio. Management's determination of the
adequacy of the reserve is based on reviews of specific loans, loan loss
experience, general economic conditions and other pertinent factors. If, as a
result of charge-offs or increases in risk characteristics of the loan
portfolio, the reserve is below the level considered by management to be
adequate to absorb probable loan losses, the provision for loan losses is
increased.

         The allowance for loan losses was 0.84% of total loans as of December
31, 2003, a decrease from 0.85% at the end of 2002. In 2003, the Company
experienced net charge-offs of $2,580,000, or 0.95% of average loans, compared
to net charge-offs of $290,000 (0.12%) in 2002 and $128,000 (0.06%) in 2001. The
Company recorded a provision for loan losses of $2,907,000, $436,000 and
$177,000 in 2003, 2002, and 2001, respectively. As a percentage of the provision
for loan losses, net charge-offs were 88.7%, 66.5%, and 72.3% in 2003, 2002, and
2001, respectively. Management increased the provision for loan losses during
the year 2003 to reflect the increased actual and probable loan losses in 2003,
primarily related to a certain commercial borrower, which was identified by
management on July 23, 2003. The Company assessed the collateral situation of
the commercial borrower and believed the collateral to be inadequate. In July
2003, the Company made a provision of $1.5 million to the loan loss reserve to
cover the estimated losses. In September 2003, the Company, once more specific
information was obtained, charged off $1.5 million against the loan loss reserve
relating to the credit loss. The Company made an additional provision for
$80,000 in September 2003 for estimated additional losses associated with this
credit. The remaining collateral will be liquidated over time to cover the
remaining balance of the loans. The collateral to be liquidated includes 4
residential properties, a commercial property, chattels and rolling stock.

         The additional charge offs mentioned above were primarily within the
agricultural portfolio. In 2002 drought conditions, reduced government program
payments, and average to below-average grain prices affected the repayment
opportunities for these certain borrowers. Management conducted a review of its
agricultural lending approval process and made modifications where necessary to
strengthen its underwriting process of agricultural operating loans. Management
believes its review process has adequately identified problem loans within its
portfolio on a timely basis.

         The amount of nonaccrual loans increased to $1,462,000 in 2003 from
$476,000 in 2002. As a percentage of total loans, nonaccrual loans represented
..51% in 2003 and .19% in 2002. The Company would have reported additional
interest income of approximately $191,000, $79,000 and $49,000 in 2003, 2002 and
2001, respectively, if nonaccrual loans had been accruing interest. The increase
in nonaccrual loans is largely due to a single commercial borrower whose
nonaccrual borrowings total $888,000. These borrowings are secured with 4
residences, a commercial property, chattels, and rolling stock, all of which
will be liquidated to repay these borrowings. Management will closely monitor
the liquidation of collateral to assure adequate proceeds are available to fully
repay the associated loans. Interest income from nonaccrual loans of
approximately $4,000 has been included in net income in 2003 and $2,000 in 2002
and 2001. Nonaccrual loans at December 31, 2003 consisted of 14 relationships.
Nonaccrual loans are expected to be resolved through payments or through
liquidation of collateral in the normal course of business. Management estimates
losses from these nonaccual loans to be approximately $6,000, which has been
included in the allowance for loan losses.

         The category of accruing loans which are past due 90 days or more
increased at December 31, 2003 to $1,441,000 as compared to $1,133,000 at
December 31, 2002. As a percentage of total loans, loans past due 90 days and
still accruing interest represented 0.51% in 2003 and 0.46% in 2002.

                                       27

<PAGE>

Management has analyzed these credits as to the borrower's current
circumstances, value of the security pledged and the likely ultimate disposition
of these loans. In management's opinion, appropriate specific reserves have been
allocated to absorb any probable loss and these accounts are expected to be
resolved through payments or liquidation of collateral in the normal course of
business. The $1,441,000 of delinquent loans is represented by 38 accounts as
follows:

         -        14 residential real estate accounts with outstanding balances
                  of $719,000 of which $64,000 has been included as a specific
                  reserve in the allowance for loan losses;

         -        7 commercial loan accounts with outstanding balances of
                  $589,000 of which $76,000 has been specifically reserved;

         -        17 consumer installment loans with outstanding balances of
                  $133,000 of which $12,000 has been specifically reserved;

As a percentage of the allowance for loan losses, total nonaccrual loans and
loans past due 90 days or more were 119.5% in 2003 and 76.4% in 2002.

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses for the years ended December 31 are as
follows (in thousands).

<TABLE>
<CAPTION>
                                                  2003          2002          2001           2000          1999
                                                --------      --------      --------       --------      --------
<S>                                             <C>           <C>           <C>            <C>           <C>
Balance, beginning of period                    $  2,106      $  1,960      $  1,911       $  1,905      $  1,911

Loans charged-off:
  Commercial and industrial                          582            44            34             42            31
  Commercial real estate                           1,050             -             -              -             -
  Agricultural                                       648            67             -              -             -
  Residential real estate                            152            91             9              -             5
  Installment                                        175           154           139            161           123
                                                --------      --------      --------       --------      --------
Total charge-offs                               $  2,607           356           182            203           159

Recoveries of loans previously charged-off:
  Commercial and industrial                            8            22             3              5             1
  Commercial real estate                               -             -             -              -             -
  Agricultural                                         -             -             -              -             -
  Residential real estate                              2             -             5              -             -
  Installment                                         18            44            46             27            22
                                                --------      --------      --------       --------      --------
Total recoveries                                      28            66            54             32            23

Net charge-offs                                    2,579           290           128            171           136

Provision for loan losses                          2,907           436           177            177           130

                                                --------      --------      --------       --------      --------
Balance, end of period                          $  2,432      $  2,106      $  1,960       $  1,911      $  1,905
                                                ========      ========      ========       ========      ========

Allowance to loans, end of year                    0.84%          0.85%         0.88%          0.86%         1.02%
Ratio of net charge-offs to average loans          0.95%          0.12%         0.06%          0.08%         0.08%
outstanding

Loan balance, end of year                       $288,624      $248,270      $223,727       $222,372      $186,868

Total average loans                             $272,013      $237,788      $227,150       $210,325      $176,738
</TABLE>

                                       28

<PAGE>

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

         The following table indicates the portion of the loan loss reserve
management has allocated to each loan type at December 31 (in thousands).

<TABLE>
<CAPTION>
                                   2003              2002             2001           2000           1999
                                  ------            ------           ------         ------         ------
<S>                               <C>               <C>              <C>            <C>            <C>
Commercial and industrial           $521              $371             $315           $271           $197
Commercial real estate               445               276              648            603            743
Agricultural                         482               676              274            255            295
Residential real estate              554               402              334            311            383
Installment                          325               284              283            248            254
Other                                 12                 -               10             16              5
Unallocated                           93                97               96            207             28
                                  ------            ------           ------         ------         ------
Balance, end of year              $2,432            $2,106           $1,960         $1,911         $1,905
                                  ======            ======           ======         ======         ======
</TABLE>

NONPERFORMING ASSETS

         The following table represents the total of nonaccrual loans and loans
90 days past due and accruing interest at December 31 (in thousands).

<TABLE>
<CAPTION>
                                              2003         2002         2001       2000     1999
                                             ------       ------       -----       ----     ----
<S>                                          <C>          <C>         <C>          <C>      <C>
Loans accounted for on nonaccrual basis      $1,462       $  476      $  383       $319     $244
Accruing loans which are past due 90 days
or more                                       1,441        1,133       1,649        668      442
Restructured loans                                -            -           -          -        -
                                             ------       ------      ------       ----     ----
Total                                        $2,903       $1,705      $2,032       $987     $686
                                             ======       ======      ======       ====     ====
</TABLE>

Deposits

         Deposits have traditionally been the primary source of the Company's
funds for use in lending and other investment activities. In addition to
deposits, the Company derives funds from interest payments and principal
repayments on loans and income on earning assets. Loan payments are a relatively
stable source of funds, while deposit inflows and outflows fluctuate more in
response to general interest rates and money market conditions.

         Deposits are attracted principally from within the Company's market
area through the offering of numerous deposit instruments, including checking
accounts, regular passbook savings accounts, NOW accounts, money market deposit
accounts, term certificate accounts and individual retirement accounts ("IRAs").
Interest rates paid, maturity terms, service fees and withdrawal penalties for
the various types of accounts are established periodically by the Company's
management based on the Company's liquidity requirements, growth goals and
market trends.

                                       29

<PAGE>

         The table below presents a summary of period end deposit balances. The
composition of deposit categories has remained relatively consistent as a
percentage of total deposits throughout the three-year period ended December 31,
2003. As a percentage of total deposits, interest-bearing demand accounts have
remained constant at 24% in 2003 and 2002, while certificates of deposits (less
than $100,000) have decreased to 37% in 2003 from 40% in 2002. This shift was
caused by the lower rate environment in 2003 and a slightly less aggressive
marketing strategy. Savings and money market accounts have only a 1% increase
from 2002 as a percentage of deposits. Certificates of deposit $100,000 and over
are primarily short-term public funds. Balances of such large certificates
fluctuate depending on the Company's pricing strategy and funding needs at any
particular time and were comparable as a percentage of total deposits in 2003
and 2002.

         Interest rates, maturity terms, service fees, and withdrawal penalties
for the various types of accounts are established periodically by management
based on the Company's liquidity requirements, growth goals and market trends.
The amount of deposits currently from outside the Company's market area is not
significant.

DEPOSIT COMPOSITION

         The following table indicates the total deposits by type at December 31
(dollars in thousands):

<TABLE>
<CAPTION>
                                                      Percent                  Percent                      Percent
                                            2003        of          2002         of           2001            of
                                           Amount      Total       Amount       Total        Amount          Total
                                          --------    -------     --------     -------       ------         --------
<S>                                       <C>         <C>         <C>          <C>          <C>             <C>
Noninterest-bearing demand deposits       $ 31,693       12%      $ 30,195       12%        $ 31,220          12%
Interest-bearing demand deposits            64,645       24%        63,755       24%          59,012          22%
Money market deposits                       19,426        7%        16,150        6%           8,618           3%
Savings                                     24,384        9%        21,852        9%          18,350           7%
Time deposits greater than $100             29,799       11%        27,296       10%          30,618          12%
Other time deposits                        100,485       37%       103,468       40%         114,790          44%
                                          --------      ---       --------      ---         --------         ---

Total                                     $270,432      100%      $262,716      100%        $262,608         100%
                                          ========      ===       ========      ===         ========         ===
</TABLE>

         The following table indicates the average amount of and the average
rate paid on deposit categories which exceeded 10% of average total deposits at
December 31 (in thousands):

<TABLE>
<CAPTION>
                                              2003                     2002                       2001
                                             Amount        Rate       Amount         Rate        Amount          Rate
                                            --------       -----     --------       -----       --------        ------
<S>                                         <C>            <C>       <C>            <C>         <C>             <C>
Noninterest-bearing demand deposits         $ 29,086                 $ 28,960                   $ 25,398           -
Interest-bearing demand deposits              83,020       1.56%                    2.00%         57,938        2.82%
  including money market deposits                                      68,787
Time deposits greater than $100               29,909       2.65%       27,798       3.61%         31,690        5.33%
Other time deposits                          101,253       2.83%      107,565       3.88%        114,803        5.69%
                                            --------       ----      --------       ----        --------        ----
                                            $243,268                 $233,110                   $229,829
                                            ========       ====      ========       ====        ========        ====
</TABLE>

                                       30

<PAGE>

MATURITIES OF TIME DEPOSITS GREATER THAN $100,000

         The following table indicates the amount of the Company's time deposits
greater than $100,000 by time remaining until maturity as of December 31,
2003(dollars in thousands):

<TABLE>
<S>                                         <C>
Three months or less                        $ 3,325
Over three through 6 months                   6,617
Over six through 12 months                    9,901
Over 12 through 60 months                     9,956
                                            -------
Total                                       $29,799
                                            =======
</TABLE>

Other Borrowings

         Periodically, the Company will borrow long term money from the Federal
Home Loan Bank (FHLB) as a way to provide funding for loan demand. At December
31, 2003, the Company had outstanding $43.7 million of total borrowings from the
FHLB with a weighted average cost of 4.11%. Borrowings of $7 million consist of
three fixed-rate notes with maturities in 2008 and 2010. At the option of the
FHLB, these notes can be converted at certain dates to instruments that adjust
quarterly at the three-month LIBOR rate. The note amount and nearest optional
conversion dates at December 31, 2003, are $3 million in March 2004; $1 million
in April 2004; and $3 million in March 2004 if the three month LIBOR reaches 8%.
The Company borrowed a $500,000 amortizing note to match against a loan to earn
a 2.55% spread. Additionally, the Company utilized a borrowing of $10 million,
due in 2012, with a rate that can adjust quarterly if the three-month LIBOR
reaches 7.75%. With the funds, the Company purchased $10 million in securities
classified as available for sale with an average yield of 5% and call features
ranging from 2011 to 2013, resulting in a net spread of 2.7% on the borrowing.

         The Company began keeping fixed rate 1-4 family mortgages in-house. To
fund these loans the Company borrowed long term money from the FHLB to lock in a
spread and match the amortization with the average life of the loan. The Company
borrowed funds with a maturities ranging from 10 to 20 years with all of them
having a 10% annual principal prepayment rate. The average life of these loans
is approximately 5 years. The average rate on the borrowings is 3.54%. The
balance on these borrowings is $26.6 million as of December 31, 2003.

Capital

         The declaration and payment of dividends by the Company are subject to
the discretion of the Board of Directors and to the earnings and financial
condition of the Company and applicable laws and regulations. The dividend
payout ratio was increased to 50.1% in 2003 from 37.7% in 2002. At December 31,
2003 consolidated Tier 1 risk based capital was 10.57%, and total risk-based
capital was 11.39%. The minimum Tier 1 and total risk-based capital ratios
required by the Board of Governors of the Federal Reserve are 4% and 8%,
respectively.

                                       31

<PAGE>

Liquidity

         Effective liquidity management ensures that the cash flow requirements
of depositors and borrowers, as well as company cash needs, are met. The Company
manages liquidity on both the asset and liability sides of the balance sheet.
Community bank liquidity management currently involves the challenge of
attracting deposits while maintaining positive loan growth at a reasonable
interest rate spread. The loan to deposit ratio at December 31, 2003, was
106.7%, compared to 94.5% in 2002. Loans to total assets were 81.9% at the end
of 2003, compared to 77.9% in 2002. The securities portfolio is available for
sale and consists of securities that are readily marketable. Approximately 70%
of the available for sale portfolio is pledged to secure public deposits,
short-term and long-term borrowings and for other purposes as required by law.
The balance of the available for sale securities could be sold if necessary for
liquidity purposes. Also, a stable deposit base, consisting of 89% core
deposits, makes the Company less susceptible to large fluctuations in funding
needs. The Company also has both short- and long-term borrowings capacity
available through FHLB with unused available credit of approximately $11.9
million as of December 31, 2003. The Company has the ability to obtain deposits
in the brokered certificate of deposit market to help provide liquidity to fund
loan growth, if necessary. Generally, the Company uses short-term borrowings to
fund overnight and short-term funding needs in the Company's balance sheet.
Longer-term borrowings have been primarily used to fund mortgage-loan
originations. This has occurred when FHLB longer-term rates are a more
economical source of funding than traditional deposit gathering activities.
Additionally, the Company occasionally uses FHLB borrowings to fund larger
commercial loans.

Impact of Inflation, Changing Prices and Local Economic Conditions

         The majority of the Company's assets and liabilities are monetary in
nature. Therefore, the Company differs greatly from most commercial and
industrial companies that have significant investments in non-monetary assets,
such as fixed assets and inventories. However, inflation does have an important
impact on the growth of assets in the banking industry and on the resulting need
to increase equity capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation also affects other expenses, which
tend to rise during periods of general inflation.

         Management believes the most significant impact on financial and
operating results is the Company's ability to react to changes in interest
rates. Management seeks to maintain an essentially balanced position between
interest sensitive assets and liabilities in order to protect against the
effects of wide interest rate fluctuations.

         The Company's success is dependent on the general economic conditions
of the communities we serve. Unlike larger banks that are more geographically
diversified, we provide financial and banking services primarily in south
central Ohio. The economies of our markets are dependent to a significant extent
on the agricultural industry. The economic conditions in these areas have a
significant impact on loan demand, the ability of borrowers to repay these
loans, and the value of the collateral securing these loans. A significant
decline in general economic conditions, and in particular the agricultural
industry, could affect these local economic conditions and could negatively
impact the financial results of our banking operations. Factors influencing
general conditions include inflation, recession, unemployment, and other factors
beyond our control.

                                       32

<PAGE>

Contractual Obligations and Commercial Commitments

         The Company has certain obligations and commitments to make future
payments under contracts. At December 31, 2003, the aggregate contractual
obligations and commercial commitments are:

<TABLE>
<CAPTION>
                                                                    Payments Due by Period
Contractual Obligations                            Less than         1-3          3-5         After 5
($ in thousands)                       Total        One Year        Years        Years         Years
-----------------------------------------------------------------------------------------------------------
<S>                                   <C>         <C>             <C>           <C>          <C>
Total Deposits                        $ 270,432   $ 225,076         45,114          230            12
FHLB Borrowings                          43,706       3,792          6,263        4,817        11,658
Repurchase Agreements                     2,784       2,784
Stock Redemption Commitment               5,845       5,845
                                      ---------   ---------       --------      -------      --------
  Total                               $ 322,767   $ 237,497       $ 51,377      $ 5,047      $ 11,670
</TABLE>

Other Commercial Commitments

<TABLE>
<CAPTION>
                                             Amount of Unused Commitments - Expirations by Period
                                                        Less than         1-3          3-5         After 5
(in thousands)                           Total          One Year         Years        Years         Years
----------------------------            -------         ---------        ------       ------       --------
<S>                                     <C>             <C>              <C>          <C>          <C>
Commitments to Extend Credit            $24,508          $8,706          $2,445       $2,678       $10,669
                                        -------          ------          ------       ------       -------
  Total                                 $24,508          $8,706          $2,445       $2,678       $10,669
</TABLE>

         The company's off balance sheet arrangement consist primarily of
business and consumer lines of credit. These arrangements arise in the normal
course of business. Management considers the company's liquidity to meet the
funding requirements of the arrangements as they occur in the normal course of
business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

III. MARKET RISK MANAGEMENT

         Market risk is the risk of loss arising from adverse changes in the
fair value of financial instruments due to variations in interest rates,
exchange rates, equity price risk and commodity prices. The Company does not
maintain a trading account for any class of financial instrument, and is not
currently subject to currency exchange rate risk, equity price risk or commodity
price risk. The Company's market risk is composed primarily of interest rate
risk.

         The major source of the Company's interest rate risk is the difference
in the maturity and repricing characteristics between the Company's core banking
assets and liabilities - loans and deposits. This difference, or mismatch, poses
a risk to net interest income. Most significantly, the Company's core banking
assets and liabilities are mismatched with respect to repricing frequency,
maturity and/or index. Most of the Company's commercial loans, for example,
reprice rapidly in response to changes in short-term interest. In contrast, many
of the Company's consumer deposits reprice slowly, if at all, in response to
changes in market interest rates.

                                       33

<PAGE>

         The Company's Senior Management is responsible for reviewing the
interest rate sensitivity position of the Company and establishing policies to
monitor and limit exposure to interest rate risk. The guidelines established by
senior management are approved by the Company's Board of Directors. The primary
goal of the asset/liability management function is to maximize net interest
income within the interest rate risk limits set by approved guidelines.
Techniques used include both interest rate gap management and simulation
modeling that measures the effect of rate changes on net interest income and
market value of equity under different rate scenarios. The interest rate gap
analysis schedule quantifies the asset/liability static sensitivity as of
December 31, 2003. As shown, the Company was asset-sensitive through 3 months,
liability-sensitive 3 through 12 months, and asset-sensitive within the one- to
five-year period. The cumulative gap as a percent of total assets through one
year at the end of 2003 was 7.62%. The balances of transaction type NOW and MMDA
accounts are scheduled to run off over their expected lives. Although the entire
balance of these deposits is subject to repricing or withdrawal in a relatively
short period of time, they have demonstrated over time to be a stable base of
retail core deposits for the company. Also, their sensitivity to changes in
interest rates is significantly less than some other deposits, such as
certificates of deposits.

INTEREST RATE GAP ANALYSIS

The following table displays the Company's interest rate gap analysis at
December 31, 2003 (in thousands):

<TABLE>
<CAPTION>
                                           Total      0-3 Months    3-6 Months    6-12 Months    1-5 Years   5+ Years
                                          --------    ----------    ----------    -----------    ---------   ---------
<S>                                       <C>         <C>           <C>           <C>            <C>         <C>
Loans                                     $288,624      $61,260       $20,746      $ 41,492      $122,295    $ 42,831
Securities                                  33,085        2,274         3,677         4,203         9,196      13,735
FHLB/FRB Stock                               2,230        2,110           120
Short-term funds                             8,625        8,625             -             -             -           -
                                          --------      -------      --------      --------      --------    --------
Total earning assets                      $332,564      $74,269       $24,543      $ 45,695      $131,491    $ 56,566
                                          --------      -------      --------      --------      --------    --------
Interest-bearing deposits                 $108,455       $6,544        $6,544      $ 13,087      $ 50,162    $ 32,118
Time deposits                              130,284       18,300        20,492        46,137        45,343          12
Short-term borrowings                        2,784        2,186           598             -             -           -
Long-term debt                              43,706          999           931         1,862        11,080      28,834
                                          --------      -------      --------      --------      --------    --------
Total interest-bearing liabilities        $285,229      $28,029       $28,565      $ 61,086      $106,585    $ 60,964
                                          --------      -------      --------      --------      --------    --------
Period gap                                $ 47,335      $46,240      $ (4,022)     $(15,391)     $ 24,906    $ (4,398)
Cumulative gap                                   -      $46,240      $ 42,218      $ 26,824      $ 51,733    $ 47,335
Gap as a percentage of assets                    -        13.13%        11.99%         7.62%        14.69%      13.44%
</TABLE>

         In the Company's simulation models, each asset and liability balance is
projected over a time horizon. Net interest income is then projected based on
expected cash flows and projected interest rates under a stable rate scenario
and analyzed. The results of this analysis are factored into decisions made
concerning pricing strategies for loan and deposits, balance sheet mix,
securities portfolio strategies, liquidity and capital adequacy.

         Simulation models are also performed under an instantaneous parallel
200 basis point increase or decrease in interest rates. The model includes
assumptions as to repricing and expected prepayments, anticipated calls, and
expected decay rates of transaction accounts under the different rate scenarios.
The results of these simulations include changes in both net interest income and
market value of equity.

         The Company's rate shock simulation models provide results in extreme
interest rate

                                       34

<PAGE>

environments and results are used accordingly. Reacting to changes in economic
conditions, interest rates and market forces, the Company has been able to alter
the mix of short and long-term loans and investments, and increase or decrease
the emphasis on fixed and variable rate products in response to changing market
conditions. By managing the interest rate sensitivity of its asset composition
in this manner, the Company has been able to maintain a fairly stable flow of
net interest income.

         Complicating management's efforts to control non-trading exposure to
interest rate risk is the fundamental uncertainty of the maturity, repricing,
and/or runoff characteristics of some of the Company's core banking assets and
liabilities. This uncertainty often reflects options embedded in these financial
instruments. The most important embedded options are contained in consumer
deposits and loans.

         For example, many of the Company's interest bearing retail deposit
products (e.g., interest checking, savings and money market deposits) have no
contractual maturity. Customers have the right to withdraw funds from these
deposit accounts freely. Deposit balances may therefore run off unexpectedly due
to changes in competitive or market conditions. To forestall such runoff, rates
on interest bearing deposits may have to be increased more (or reduced less)
than expected. Such repricing may not be highly correlated with the repricing of
prime rate-based or U.S. Treasury-based loans. Finally, balances that leave the
banking franchise may have to be replaced with other more expensive retail or
wholesale deposits. Given the uncertainties surrounding deposit runoff and
repricing, the interest rate sensitivity of core bank liabilities cannot be
determined precisely.

The following table indicates the Company's interest rate-sensitive instruments
and their repricing year and current average yield/(cost) for the periods ended
December 31 (in thousands).

<TABLE>
<CAPTION>
                                                                                                  Later
                                      2004         2005        2006         2007       2008       Years      Total       Fair Value
                                     --------     -------     -------      ------     -------    --------   --------     ----------
<S>                                  <C>          <C>         <C>          <C>        <C>        <C>        <C>          <C>
Fixed rate loans                      37,250      13,486       9,732       6,121       4,070      29,097      99,756        100,265
Average interest rate                   6.75%       7.36%       7.20%       7.13%       6.69%       6.31%

Adjustable rate loans                102,732      26,127      27,053       9,711      21,207       1,985     188,868        189,376
Average interest rate                   5.44%       6.76%       6.21%       7.00%       6.09%       7.20%

Securities(1)                         12,013         350         555         341          27      20,777      34,064         35,315
Average interest rate                   3.12%       5.36%       5.52%       6.33%       5.20%       5.45%

Interest-bearing time deposits        84,929      42,914       2,220         126         103          12     130,284        130,517
Average interest rate                   2.30%       3.15%       3.15%       2.35%       3.82%       4.74%

Interest-bearing demand deposits     108,455           -           -           -           -           -     108,455        108,455
Average interest rate                   1.41%          -           -           -           -           -

Short-term borrowings                  2,784           -           -           -           -           -       2,784          2,784
Average interest rate                   2.61%          -           -           -           -           -

Long-term debt                             -           -           -           -           -       43,706     43,706         41,492
Average interest rate                      -           -           -           -           -         4.11%
</TABLE>

(1) For the purpose of this table, securities include FHLB Stock and FRB Stock

                                       35

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Registrant's consolidated audited financial statements and the report of its
independent auditor are attached hereto as an exhibit 99. The selected quarterly
financial data is provided under Item 5 of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

None.

ITEM 9A.  CONTROLS AND PROCEDURES

         The Registrant maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Registrant's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Registrant's management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure based on the definition of
"disclosure controls and procedures" in Exchange Act Rules 13a-15(e) and
15d-15(e). In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

         The Registrant has carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Registrant's disclosure
controls and procedures. Based on the foregoing, the Registrant's Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this report, the Registrant's disclosure controls and
procedures were effective, in all material respects, to ensure that information
required to be disclosed in the reports the Registrant files and submits under
the Exchange Act is recorded, processed, summarized and reported as and when
required.

         The Registrant also conducted an evaluation of internal controls over
financial reporting to determine whether any changes occurred during the quarter
ended December 31, 2003, that have materially affected, or are reasonably likely
to materially affect, the Registrant's internal control over financial
reporting. Based on this evaluation, there has been no such change during the
quarter that ended December 31, 2003.

                                       36

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Certain information required by this item is set forth in the Company's
definitive Proxy Statement for the 2004 Annual Meeting of Shareholders to be
held April 27, 2004 under the sections captioned "ELECTION OF DIRECTORS AND
VOTING PROCEDURES," "EXECUTIVE COMPENSATION AND RELATED ITEMS" and "SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE," and is incorporated herein by
reference.

         The Board of Directors has determined that the Company does not have an
audit committee financial expert servings on its audit committee. However, the
Board of Directors believes that each audit committee member has sufficient
knowledge in financial and auditing matters to effectively serve on the
committee. At this time, the Board does not believe it is necessary to actively
search for an outside person to serve on the Board who would qualify as a
financial expert.

         The Company has adopted a code of ethics that applies to its principal
executive, financial and accounting officers. A copy of the Company's code of
ethics will be provided without charge to any person submitting a written
request for the code of ethics. All such requests should be submitted to the
attention of Ms. Nancy Hendrickson at the address of the main office of the
Company.

ITEM 11. EXECUTIVE COMPENSATION.

         The information required by this item is set forth in the Company's
definitive Proxy Statement for the 2004 Annual Meeting of Shareholders to be
held April 27, 2004 under the section captioned "EXECUTIVE COMPENSATION AND
RELATED ITEMS," and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

         The information required by this item is set forth in the Company's
definitive Proxy Statement for the 2004 Annual Meeting of Shareholders to be
held April 27, 2004 under the section captioned "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND Management," and is incorporated herein by reference.

         The Company currently has no securities authorized for issuance under
equity compensation plans which would require the disclosures mandated by
Section 201(d) of Regulation S-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this item is set forth in the Company's
definitive Proxy Statement for the 2004 Annual Meeting of Shareholders to be
held April 27, 2004 under the section captioned "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS," and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is set forth in the Company's definitive
Proxy Statement for the 2004 Annual Meeting of Shareholders to be held April 27,
2004 under the section captioned "INDEPENDENT PUBLIC ACCOUNTANT" and is
incorporated herein by reference.

                                       37

<PAGE>

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

A.       Annual Financial Statements

         Independent Auditors' Report
         Consolidated Balance Sheets,
                  December 31, 2003 and 2002
         Consolidated Statements of Income,
                  Years ended December 31, 2003, 2002 and 2001
         Consolidated Statements of Changes in Shareholders' Equity
                  Years ended December 31, 2003, 2002 and 2001
         Consolidated Statements of Cash Flows,
                  Years ended December 31, 2003, 2002 and 2001
         Notes to Consolidated Financial Statements,
                  December 31, 2003, 2002 and 2001

B.       Reports on Form 8-K
         No reports on Form 8-K were filed by the registrant during its fiscal
         quarter ended December 31, 2003.

C.       Exhibits

         (3)      Corporate Governance Items

                  3.1      Articles of Incorporation, filed as Exhibit (3)(I) to
                           the Form 10 filed with the SEC on April 30, 2002 and
                           incorporated herein by reference.

                  3.2      Code of Regulations, filed as Exhibit (3)(II) to the
                           Form 10 filed with the SEC on April 30, 2002 and
                           incorporated herein by reference.

        (10)      Material Contracts:

                  10.1     The Merchants National Bank Defined Benefit
                           Retirement Plan, filed as Exhibit 10.1 to the Form 10
                           filed with the SEC on April 30, 2002 and incorporated
                           herein by reference.

                  10.2     The Merchants National Bank Profit Sharing and 401(k)
                           Savings Retirement Plan and Trust, filed as Exhibit
                           10.2 to the Form 10 filed with the SEC on April 30,
                           2002 and incorporated herein by reference.

                           -        Defined Contribution Prototype Plan; and

                           -        Non-Standardized 401(k) Savings Plan and
                                    Trust Prototype Plan Adoption Agreement

                  10.3     The Merchants National Bank Profit Sharing Bonus
                           Plan, filed as Exhibit 10.3 to the Form 10 filed with
                           the SEC on April 30, 2002 and incorporated herein by
                           reference.

                  10.4     The Merchants National Bank of Hillsboro, Ohio
                           Executive Investment Plan, filed as Exhibit 10.4 to
                           the Form 10 filed with the SEC on April 30, 2002 and
                           incorporated herein by reference.

                  10.5     The Merchants National Bank Directors' Deferred
                           Compensation Plan, filed as Exhibit 10.5 to the Form
                           10 filed with the SEC on April 30, 2002 and
                           incorporated herein by reference.

                                       38

<PAGE>

         (21)     Subsidiaries of the Registrant, filed as Exhibit (21) to the
                  Form 10 filed with the SEC on April 30, 2002 and incorporated
                  herein by reference. Pursuant to section 302 of the
                  Sarbanes-Oxley Act of 2002 by Chief Executive Officer and
                  Chief Financial Officer

         (31)     Rule 13a-14(a) Certification

         (32)     Section 1350 Certification

         (99)     Independent Auditors' Report and Consolidated Financial
                  Statements

                                       39

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act or 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                         Merchants Bancorp, Inc.
                                    ---------------------------------
                                              (Registrant)

Date March 30, 2004              By       /s/ Paul W. Pence, Jr.
                                    ---------------------------------
                                      Paul W. Pence, Jr., President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Date March 30, 2004              By       /s/ Paul W. Pence, Jr.
                                    --------------------------------------------
                                    Paul W. Pence, Jr.
                                    Principal Executive Officer, Principal
                                    Financial Officer and Director

Date March 30, 2004              By       /s/ James D. Evans
                                    --------------------------------------------
                                    James D. Evans, Principal Accounting Officer

Date March 30, 2004              By       /s/ Donald Fender, Jr.
                                    --------------------------------------------
                                    Donald Fender, Jr., Director

Date March 30, 2004              By       /s/ Richard S. Carr
                                    --------------------------------------------
                                    Richard S. Carr, Director

Date March 30, 2004              By       /s/ James R. Vanzant
                                    --------------------------------------------
                                    James R. Vanzant, Director

Date March 30, 2004              By       /s/ Robert Hammond
                                    --------------------------------------------
                                    Robert Hammond, Director

Date March 30, 2004              By       /s/ William Butler
                                    --------------------------------------------
                                    William Butler, Director

Date March 30, 2004              By       /s/ Charles A. Davis
                                    --------------------------------------------
                                    Charles A. Davis, Director

Date March 30, 2004              By       /s/ Jack Walker
                                    --------------------------------------------
                                    Jack Walker, Director

                                       40

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit     Page
Number     Number                           Exhibit Description
-------    ------        -----------------------------------------------------------
<S>        <C>           <C>
3.1          N/A         Articles of Incorporation(1)

3.2          N/A         Code of Regulations(1)

10.1         N/A         Merchants National Bank Defined Benefit Retirement Plan(1)

10.2         N/A         Merchants National Bank Profit Sharing and 401(k) Savings
                         Retirement Plan and Trust(1)

10.3         N/A         Merchants National Bank Profit Sharing Bonus Plan(1)

10.4         N/A         Merchants National Bank of Hillsboro, Ohio Executive
                         Investment Plan(1)

10.5         N/A         Merchants National Bank Directors' Deferred Compensation
                         Plan(1)

21           N/A         Subsidiaries of the Registrant(1)

31           42          Rule 13a-14(a) Certification

32           43          Section 1350 Certification

99           44          Independent Auditors' Report and Consolidated Financial
                         Statements
</TABLE>

(1) Incorporated by reference to the Company's Form 10 filed with the SEC on
    April 30, 2002

                                       41